Question

4-11. Are annuities good investments? To answer this question, consider the situation of John. He is 50 years old and can purchase a lifetime annuity for $200,000. The annuity pays John $9,000 per year for the rest of his life. If John lives to be 85, what rate of return will he earn on this investment? What if John only lives to be 75? (4.7)

Answer 1

solution:

Annuities are a safe way to make an investment when a person is taking retirement. The rate of return computation is as follows:

In the above situations he is earning some return which is positive thing.